Monthly Archives: July 2010

Agile software development is now mainstream

by Paul Krill, InfoWorld

A new Forrester report finds widespread use of the iterative software development processes

Agile software development  processes, in which software is built in short iterations rather than mapped out fully in advance, have joined the mainstream of development approaches, according to a Forrester Research report released this week.

Forrester surveyed nearly 1,300 IT professionals and found that 35 percent of respondents stated that agile most closely reflects their development process, with the number increasing to 46 percent if the definition of agile is expanded to include practices such as rational unified process or spiral.

[ InfoWorld reported last year that while agile programming is beneficial, it will nonetheless ruffle feathers. ]

“Perhaps the clearest sign of the mainstreaming of agile is the abandonment of orthodoxy: Teams are puzzling out the mix of methodologies and combining them to fit within their organizational realities, blending agile and non-agile techniques and practices to create a hybrid methodology that fits larger organizations,” according to the executive summary of the report, which is entitled “Agile Development: Mainstream Adoption has changed Agility.”

“It’s time for software development professionals to stop sitting on the fence where agile is concerned. According to those who have successfully adopted agile, the benefits are well worth the effort, and with the recent dramatic increase in agile adoption, the probability of working in or with an agile team has increased for everyone,” Forrester said.

The favored agile methodology, scrum, was used by nearly 11 percent of respondents. “Scrum focuses on how people work instead of on the work that they do, and it relies on the principles laid out in the Manifesto for Agile Software Development,” Forrester said.

However, teams are choosing parts of different process models.

“Most teams are not adopting scrum, extreme programming, or another specific Agile approach, but are embracing agile as an ethos or philosophy and cherry-picking the best bits from many different process models to develop a formula unique to their own situation,” according to the report.

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Agile programming: Beneficial, but it’ll ruffle feathers

[InfoWorld reported last year that while agile programming is beneficial, it will nonetheless ruffle feathers.]

By Paul Krill | InfoWorld

Workshop attendees say that the iterative software development methodology provides enormous flexibility, however it will displease some developers.

In Agile programming teams build software in short iterations instead of mapping everything out in advance from beginning to end, and it offers benefits like flexibility while also poses organizational challenges, stressed by speakers at a workshop Thursday.

During an event at IBM offices in San Mateo, Calif., viewpoints on benefits and issues confronted when moving to an agile paradigm were posted by speakers from the agile development space.

“I think the challenge, whenever we try to encapsulate a short definition of agile, is that it expands in a lot of directions. Really, it’s a set of umbrella terms for a set of approaches that are going to be iterative, incremental and collaborative,” said Rich Mironov, chief marketing officer at agile consulting firm Enthiosys.

In accordance with Mironov’s presentation, the features of agile technologies focus on the frequent delivery of smaller, valuable increments and build quality in instead of adding it in at the end. Part of the process is user’s active involvement, and teams must be empowered and self-motivating. Benefits include strategic flexibility, improved team morale, deeper connection, and alignment with markets and greater profitability.

Through more direct involvement with customers can better market alignment be achieved, while profits can be increased since agile enables more software to be shipped at a higher quality and more products to be built with fewer resources, explained Mironov.

Though agile also enables early identification of project failures, it will not please everyone on the development team, Mironov said. “I haven’t seen [anybody] go through a transformation where everybody came out the other side happy. You’ll lose some folks because it’s not a style fit or they weren’t very good and you may not fit with agile. Expect some fallout or some people who need to move to the part of the organization that’s not going this way,” he added. .

At the same time, collaborative software tools will be necessary when involving remote development teams in agile projects

An audience member emphasized how agile can face opposition.

“My experience with agile is there’s a lot of resistance to it because it’s not the way we’ve done things before,” said Ryan Grisso, software engineering manager at NetSuite, which uses an agile approach and makes a hosted business application.

Johnny Scarborough, vice president of product engineering at GlobalLogic which provides software development services, touted Scrum, one of the more popular agile methods.

Among the features of scrum, there are an agile software development framework and a “ScrumMaster,” that directs the team how to use scrum as well as to serve and protect the team. No specific engineering practices are regulated. Teams are self-organizing and cross-functional when in scrum, Scarborough said. “This is a cultural change in a lot of organizations,” said he.

“Scrum is about being adaptable,” Scarborough said.

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Europeans prefer staff suppliers to outsourcers: Forrester

By John Ribeiro

Outsourcing both to Eastern Europe and offshore to India has not grown as a result.

In accordance with a report delivered by Forrester Research, a preference by companies in Western Europe for contract IT staff is cutting into the business of outsourcing companies in these countries.

Sudin Apte, a principal analyst at Forrester, said on Friday that Western Europe companies (except the U.K., where outsourcing is popular) preferred to hire people who were supplied by outside contractors but based in their facilities.

According to Apte, companies in Western Europe don’t want to hurriedly outsource overseas in order to cut cost. On the other hand, the first thing on their agenda is to be well integrated with the local social fabric, including avoiding cutting jobs in their countries and complying with local labor rules and other norms, Apte added.

India exports a total worth of €5 billion (US$6.8 billion) of IT services to Western Europe (U.K. not included), which takes up about 5 percent of the total IT services market in the region, said Forrester.

It is Apte’s opinion that Indian outsourcers prefer to independently manage their staff and offer delivery from offshore locations, which has not help them win much European business.

Eastern European countries, which attempted to benefit from their geographical proximity and cultural similarity with Western Europe, also haven’t gained much business from the region. Less than €500 million was collectively exported to Western European countries (excluding the U.K.) by near-shore locations in Eastern Europe, said Forrester.

Though many companies avoid outsourcing, large multinational companies in Europe who have experience in operating in many countries, already outsource to offshore locations like India, Apte said. The reason they are outsourcing is that they have to compete with large U.S. companies which already make use of low-cost offshore resources. However, the trend is falling behind the companies which have their operations primarily in Western Europe, Forrester added.

Some Indian outsourcers have begun to pay more attention to their business in Europe, and they have made a big progress because of the recession in U.S. which led to a slump in their revenue. Some of them, such as Infosys Technologies and Wipro, have also set up near-shore facilities in Eastern Europe.

Even so, Indian outsourcers only received limited benefit in Europe. In the quarter to Dec. 31, Tata Consultancy Services, India’s largest outsourcer, won 18.5 percent of its revenue from the U.K., and 10.7 percent from the rest of Western Europe. However, the U.S. accounted for 52 percent of its revenue.

In order to obtain a “foot-in-the-door” with these accounts, some of their competitors, including multinational services providers, hire out staff to companies in Western Europe, said Apte. Then, they move to outsourcing projects in near-shore locations step by step, and later move some of these projects to offshore locations, he added.

Nevertheless, Indian companies haven’t flexibly changed their methods in their approach in Europe, Apte added.

Even if Indian outsourcing companies change their approach, they should not expect a rapid boom in business from Western Europe, except the U.K. In the next three to four years, exports from India will still account for about 12 to 15 percent of the total IT services market in Western Europe, excluding the U.K., Apte said.

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Outlook 2010 IT skills checklist: The vertical climb


By Denise Dubie, Network World

Having gone through a year of hiring hard times and layoffs, IT professionals in 2010 will meet a challenging employment market and the search for IT talent will grow beyond in-demand high-tech skills to also include industry-specific business savvy.

Analysts say that though the employment market will boom in 2010, IT professionals who are still suffering from the pain of the economic recession occurred in 2009 won’t immediately relieve their burden. IT teams will be rebuilt by the companies, but most of them will return to pre-recession levels as IT executives examine different sourcing options while dedicated to help their businesses recover from the recession.

“Companies looking to fill internal IT roles will focus more on crucial business-facing positions. There is no longer a blurring between IT and the business; those barriers are broken down now. IT will be expected to take more of a leadership role and make decisions for the business. IT needs to look for opportunities to really help the business transition from recession to recovery. IT needs to do more than support the business now; it needs to prepare an organization to return to growth and show how technology can be used to help the business shine,” says Lily Mok, vice president of Gartner’s CIO Research.

That is to say that managers and recruiters are looking for IT pros possessing vertical-industry knowledge in areas including healthcare, insurance and government, as well as experience with business process re-engineering. However, in emerging areas, technology-specific skills such as cloud computing and software-as-a-service will stimulate the need for savvy vendor management approaches, while security, virtualization and data center technical know-how will continue to be in great demand among the pool of available IT pros.

Jeff Schwartz, principal of human capital at Deloitte Consulting, says, “Data shows that the combination of deep technical IT skills with project management or leadership experience, as well as looking at the intersection of IT and risk management for the business, are the areas in highest demand.”

Know your vertical

Gone is the stereotype of IT existing in the back office and not facing the business. During the past years, industry watchers have suggested high-tech workers to better communicate with the business, but now is to become a critical subject in the success of the business – and not merely by taking direction. IT professionals will be expected to take a leadership role in 2010 and actively participate in making decisions in the maximum benefit of the business.

“Even with all the new technologies going on, the job market for IT pros is about the application of the technologies to the business. The skills required going forward will be multi-faceted in ways they haven’t been in the past, “says Rich Milgram, CEO of recruiting and strategic staffing provider Beyond.com. “Technology workers need to understand the business and provide a diverse set of technical skills to become the go-to person to deliver the right technology for the business. ”

Especially, some vertical industries will see a huge situation in demand for high-tech workers. For example, in accordance with the Computing Technology Industry Association, in the next 12 months, healthcare is supposed to be in demand for 70,000 new IT positions. The increase in open jobs is partly because the American Recovery and Reinvestment Act of 2009, including billions provided for healthcare IT. The expected increase in demand is encouraging industry organizations such as CompTIA to work out the best ways to educate and train IT workers on healthcare-specific skills.

“We are working now to determine what kind of IT roles should be supported in certifications from CompTIA,” says Terry Erdle, senior vice president of skills certifications at CompTIA.

Because insurance companies and government agencies are also associated with economic stimulus plans, they will face a significant increase in demand for high-tech talent.

Deloitte’s Schwartz says, “There is little question that the healthcare sector, regardless of what the outcome of healthcare reform will be, is going to continue growing. From an industry perspective, healthcare is at the top of the list followed by government agencies in terms of demand.”

This increasingly focus on business knowledge will also lead to demand in other areas, such as IT governance, business processes engineering, project management and architect positions, high-tech talent experts report.

“The skills within IT that are process-centric are clearly more in demand today. The blurring of lines between business process engineers and technology engineers has happened and companies want to hire candidates that will be able to apply governance, to implement and modify systems in a more cost-efficient manner using process engineering and knowledge automation,” says Sean Ebner, regional vice president of Technisource.

IT industry watchers agree that understanding the business, being able to re-engineer processes in such a way to streamline operations and optimizing IT projects will be top of mind for many hiring managers.

Gartner’s Mok says, “Those coming from the business side or being very well versed in the business processes are in good positions. Combining the knowledge of the technical systems with business processes will help IT professionals get and keep key positions.”

Secure next-generation nets

It’s no surprise with multiplying headlines around data leaks and cybercrime that security skills remain popular, even in the downturn of the employment market. However, according to analysts, the type of security professional in demand ranges from technical skills acquired via certifications to executive-level risk managers.

David Foote, co-founder, CEO and chief research officer at Foote Partners, says, “Security continues to be in demand, in both operational and strategic positions. Information risk management is seeing growth as well as those positions that require a tactical technical focus.”

On the basis of Foote Partners data, even though many certified and noncertified skills experienced pay decreases throughout the recession, IT professionals with security certification on average experienced a nearly 2% pay increase through the third quarter of 2009. During the past two years, as a whole, IT security certifications experienced average premium pay increase by more than 3.6%, falling behind only architecture/project management certifications which experienced a 5% compensation increase in the same timeframe.

“If you know how to keep your company’s data secure, you were in demand yesterday, are in demand today and will be in demand tomorrow,” says Tom Silver, senior vice president with Dice.com.

In late 2009, CompTIA conducted a survey to 1,537 high-tech workers and found 37% of them are inclined to pursue a security certification over the next five years. Separately, about 20% hinted that they would seek ethical hacking certification over the same time period. Besides, another 13% pointed out that would pursue forensics as their next certification goal in their career development.

“When you add the results, you will see that about two-thirds of IT workers intend to add some type of security certification to their portfolio. This trend is driven by two factors: one, security issues are pervasive, and two, more and more people are moving to managed services and software-as-a-service models, which involves more complex networking. That level of non-enterprise data center computing has people look more closely at their security infrastructure,” says Terry Erdle, senior vice president of skills certifications.

Acquire open source skills

Open source software is gaining steam among enterprise companies that find the flexibility and low cost appealing and now can pick and choose among commercial support packages. According to IT talent experts who report that companies in 2010 will look for candidates owning open source skills, certified skills and experience in the realm of open source packages are already on recruiters’ radar.

“We are seeing a ton of demand for skills around open source technologies and frameworks,” says Michael Kirven, co-founder and principal of IT resourcing firm Bluewolf. “Demand for Python, Ruby on Rails and PHP development skills far exceeds the number of people available with skills.”

Dice.com, the online job resource for technology professionals, also claims show increased favor in open source skill sets. Silver says the Web site has witnessed a growth in interest around programming skills such as Ruby on Rails and as well as Python l.

“There are about 1,000 jobs open looking for such skills and we expect open source technologies are an area employers will be looking to hire,” he says.

Yet keep in mind the interest in these technologies is at an enterprise level, from employers looking to hire IT professionals that can help them run data centers more efficiently and cost-effectively.

However, remember the interest in these technologies is at an enterprise level, from employers hoping to employ IT professionals who can help them run data centers more efficiently and cost-effectively.

Kirven adds, “Hiring managers want to see more than people playing around with open source in a sandbox environment. People that get trained and certified on these open source technologies will stand out when their resumes fall on recruiters’ desks.”

Understand the hype

Perhaps decorated in a bit of hype, emerging technologies have also caught attention from hiring managers. With vendors touting cloud computer, software-as-a-service (SaaS) applications and social networking tools as a productivity, operations and economic problem solvers, enterprise IT leaders will demand staff who can navigate through the fluff and find the substance in such offerings.

According to Mok, cloud computing, mobility, social networking and virtualization did Gartner realize as top technologies for 2010, which means, in return, hiring managers will be seeking skills in those same areas. This is one reason why the research firm identified Java, .Net and other Web development technologies as a sought after skill set.

“The demand for such skills is not about the amount of available IT pros that know Java, it is more with the quality of the skill sets people have in those areas,” Mok explains. “The future is the Web via social computing and those are just extensions of a variety of multimedia and Web skills. It is directly related to how businesses can use the Internet to better connect with customers.”

While Web development skills aren’t new, cloud computing, for instance, is being presented as a new technology, though many would argue it is based on previous models for delivering technology. Still such confusion around cloud services could be quickly cleared up but a high-tech worker well-versed in the market who knows what moves might best benefit the company. Such knowledge is going to get IT leaders’ attention, IT talent experts say.

“Anyone looking for work in the IT space should be well-versed in what cloud means to the company they want to work for. It means many different things, everyone is throwing cloud into their product pitches,” Bluewolf’s Kirven says. “Hiring managers want to see people that have done cloud before and understand how it can be used and how it can turn into a disaster. They want the best possible talent in house to try to drive these new initiatives.”

Vendors such as IBM are even getting in on the cloud skills action. The company in fall 2009 launched its IBM Cloud Academy, which it describes as a “global forum for educators, researchers and IT personnel from the education industry to pursue cloud computing initiatives, develop skills and share best practices for reducing operating costs while improving quality and access to education.” CompTIA also in the fall of 2009 acquired MSP partners, which Erdle says, is helping the industry organization “baseline requirements for a set of certificateons around managed services, SaaS, cloud and virtual skills.”

“We get several calls per week around SaaS, cloud and virtual skills that companies want guidance on considering we are the vendor-neutral party,” Erdle explains. “CompTIA is working now on building certifications programs to release in 2010 and get in front of this growing demand.”

Deliver advanced data centers

In the wake of the recession, companies won’t abandon the lessons learned from over-provisioning or spending needlessly on excess infrastructure resources, for instance. Designing and delivering cost-efficient, consolidated data centers will top the list of many IT leaders and finding employees experienced in the areas of virtualization energy-efficient computing will be critical to their success during the economic recovery.

“There is huge demand right now for a lot of the skills around data center moves and consolidations. There are skills lacking in virtualization technologies and even network technology that they need to understand to support next-generation data centers,” Bluewolf’s Kirven says. “Add data center security and disaster recovery skills to that list and the ideal candidate would need to be very well versed in the many technologies that make up data centers of the future.”

As companies continue to invest in virtualization, the demand for IT professionals experience in designing virtual data centers will also grow. According to Foote Partners, virtualization continues to land on the research firm’s hot list of technologies and related skills.

“There has been a lot of spending around virtualization skills already,” Foote says.

Companies today are seeking talent in virtualization and employment watchers expect the existing numbers to only continue to grow.

“We have more than 1,000 jobs on the site right now that call for understanding virtualization and how that technology can be applied to a company’s infrastructure,” Dice.com’s Silver adds, “If you have experience in virtualization, if you essentially know how you can help your company’s data center run more efficiently, then you are already in demand.”

Looking ahead

Industry watchers report IT staffs could remain lean in the coming months and that economic recovery might not indicate a full job recovery to pre-recession numbers. That doesn’t mean there isn’t opportunity for IT professionals to expand their careers and take advantage of the opportunity to become a critical part of their company’s business in the long-term, according to Gartner’s Mok

“IT departments during the downturn were very cautious about where they reduced and more organizations plan to keep staffing levels flat for a period of time. As the recovery continues, they might not even add too much, so I don’t think we will ever go back to the big IT departments of 2000 or 2001,” she says. “But companies realize today that these business-savvy technology skill sets take time to develop and they are doing a better job of workforce planning and training staff on the technologies they feel their business will need in the future.”

Some IT watchers argue that high-tech remains a successful career option for many. The fact that many jobs remained open during the recession points to a continued need for high-tech talent, and job seekers should consider this a positive sign going forward, researching in what vertical market the skills they possess are most in demand.

“We’ve seen throughout the recession the interesting phenomenon of unfilled jobs even though people are actively looking for work. That is just one measure of the skills gap,” Deloitte’s Schwartz says. “The job market is different than in boom time, and the problem remains to be about matching available skills to open positions.”

And while some say the future for IT professionals continues to look promising, they are quick to point out that it also looks very different from the past.

“Market influences such as outsourcing and budget strain is forcing clarity on how money is spent on high-tech talent,” says Adam Lawrence, vice president of service delivery at Yoh Talent Solutions. “Ultimately it comes down to the worker to move up the value chain from being a great coder to becoming an architect savvy in the business, for instance. Technology workers must know how the business is intricately underpinned with technology and use their technical talent toward making the business a bigger success.”

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How to use outsourcing to boost your IT career in 2010

By Denise Dubie

Benefit in cloud computing, managed services and SaaS set new records during the downturn in 2009, and industry observers propose the various sourcing options will also drive high-tech hiring decisions into 2010 as IT departments need to take all technology delivery vehicles on the road to economic recovery into account.

Since outsourcing is an alternative to internal staff, it can often be perceived in a negative perspective. However, in 2010, IT talent industry watchers claim that high-tech workers who can identify areas that can be outsourced and save their companies cash will be in demand. In addition, experts say vendor negotiation and management skills will also be in need, as companies attempting to rebuild toward an economic recovery seek the most affordable contracts.

Lily Mok, vice president of Gartner’s CIO Research, says, “Outsourcing is going to continue to be a trend, and the skill sets to manage vendor relationships and contract performance will be highly valued. Companies will want to consolidate vendors, find better deals with existing vendors, really understand their contracts in terms of costs and performance, and renegotiate contracts to find better options.”

David Foote, co-founder, CEO and chief research officer at Foote Partners says that IT candidates with expertise in fields such as software license management, contract negotiations and managing consultants or distributed teams could help a company determine which managed service offering could be a good fit or whether cloud computing is a sound choice or not for a midsize or smaller company.

“Research shows that about half of all enterprises have purchased some managed services. There has been a lot of interest around in-house skills and managed IT services. There is a lot less hiring in some areas that clearly managed services can pick up the slack in, such as VoIP, especially for SMB segments,” Says Foote.

Employees will not only be expected to understand all available outsourcing options, but they must also be aware that they could be working more closely with IT teams in India or other countries if their company signs a contract to work with an offshore provider. In accordance with IT talent experts interviewed, promising candidates would be wise to cite any experience with offshore teams and promote the positive differentiator they could add from such previous dealings.

“The globalization of the IT workforce will continue, and the combination of insourcing and outsourcing will also obviously continue. Anything IT professionals can do to highlight their experience working with high-tech workers in multiple countries and distributed workers will resonate with IT hiring managers,” says Jeff Schwartz, a principal with Deloitte Consulting’s Human Capital practice.

In face of a combination of in-house and external workforce, IT staffers will need to differentiate themselves with not limited to technical knowledge. The competent internal employee would be able to make decisions about technology essential to the company’s line of business, according to IT talent recruiters. For example, more generic technical duties will be sent off-premises via a SaaS service desk.

Matt Colaursso, manager of Sapphire’s National Recruiting Team, says, “Everything we are hearing going forward is about business-facing roles with technology expertise. As technologies continue to advance, you will see the size of IT departments get smaller and people in house will be working simultaneously on multi-layer projects that require knowledge of the core business and might require managing offshore teams, contractors or other outsourcers. Those are the high-tech jobs that won’t and can’t be outsourced.”

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U.K. Outsourcer Sets Up BPO in Indian Town

By John Ribeiro

British outsourcer Xchanging is setting up a business process outsourcing (BPO) center in a town in India, hoping to tap into the low-cost, skilled staff available outside the country’s cities.

The company has already hired about 400 staff locally at Shimoga, northwest of Bangalore, with employment letters issued to another 200 staff, said David Andrews, CEO of Xchanging, in a telephone interview on Wednesday.

The company plans to have 1,000 staff at the center in about 18 months, with an option to scale to a 2,000 seat center.

“We have tested complex processing at Shimoga, and we can get the same standards of delivery there as we can elsewhere,” Andrews said.

India’s outsourcing industry has grown primarily in large urban locations, leading to a large-scale migration of people from towns and rural areas into the cities. About 60 percent of the staff working in the BPO industry comes from Indian towns and villages, according to the National Association of Software and Service Companies (Nasscom).

The rural BPO model has so far been tried mainly by NGOs (nongovernmental organizations). However, as demand for BPO services is booming, including from the domestic market, there is greater interest from outsourcers in setting up centers in small towns and rural areas.

Having a low-cost BPO in Shimoga will help Xchanging better compete for domestic Indian business, Andrews said. As costs in Indian cities increase, and getting quality staff becomes difficult, the company is exploring a model that combines delivery centers in big cities with centers in smaller towns.

The new center in Shimoga will be Xchanging’s fourth major processing center in India. The company employs over 3,400 people in the country, and has three of its top 10 global processing hubs in Bangalore, Gurgaon and Chennai, the company said. It employs over 8,000 staff worldwide.

Xchanging offers business processing services and technology services to support business services, Andrews said. The new center at Shimoga will have IT and BPO staff to reflect the mixed services profile of the company, he said. It will service customers both in India and abroad.

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IT Outsourcing: What Can Safely Go Offshore

By Mathias Thurman

Our security manager is willing to outsource some things, but others are simply out of the question.

I’ve been asked to send more of our security services offshore, and that request has me thinking about what I would be comfortable with outsourcing and what I would never want to risk putting in the hands of a distant provider.

Trouble Ticket

* At issue: More security services need to go offshore.

* Action plan: Think carefully about what can and can’t be securely done from afar.

It’s difficult to counter the cost argument for offshoring. India is the lowest-cost region that has reliable network connectivity, a workforce that is proficient in the English language, a favorable tax regime and a stable government. Since it is also safe and easy to get to, India is our offshore location of choice. And in India, we can get three security engineers for the cost of one in the U.S.

Currently, we offshore the management of security patches. Analysts in India continually monitor Microsoft’s (MSFT) security updates, third-party sites and forums that discuss vulnerabilities and recommended security patches. The analysts apply predefined criteria to figure out whether a particular operating system or application patch is relevant for us and determine the risks of applying the patch or not applying it. They then provide us with the patches that they deem necessary to our desktops, servers and network so we can install them during our maintenance windows. If the patches are critical or need immediate action, they are escalated accordingly. All of this has been working quite well.

But there are some things that I would simply refuse to offshore. For example, investigative work, such as forensics or anything that would require administrative action against an employee or other company, is just too sensitive to be handled out of house. I also feel uncomfortable offshoring the administration of our data leak prevention infrastructure, because DLP devices contain some of our company’s most critical data. I’d rather keep control of such information in the U.S.

Security

But other things do make sense. Intrusion detection is one example. Intrusion-detection systems are not plug-and-play. They require updates, continuous tuning and careful response and analysis of events. I don’t have the staff to properly manage our dozen IDS sensors, and I would welcome additional hands and eyes to do much of the work necessary to ensure a successful deployment. I might even consider a fully managed service in which the provider installs its own sensors. That way, we could increase our coverage to 100%; we’re currently at just 70% of our network.

Another example is vulnerability management. We are evaluating Qualys to control the devices we use to scan our internal address space. Since the Qualys service is an Internet-facing application, I wouldn’t mind providing access to a third party in India to run the scans and process the results on a regular basis.

Of course, if I hand off all of this work to third parties, I will still be responsible and have to answer to the executive staff should anything go wrong. For that reason, I will still conduct periodic audits of our service providers to ensure that they are meeting service-level agreements and statements of work.

POP Update

In my previous column, I mentioned that I would be terminating POP and IMAP e-mail services because they pose a risk. As anticipated, there was some fallout, and I’ve had to make exceptions.

One is related to the e-mail of executives who serve on the boards of directors of other companies and want to download mail from those companies’ e-mail systems into their Outlook clients here. The other exception is for the engineering collaboration sites that our engineers use as they work to improve our products. To accommodate the exceptions, we will make a rule in our firewall infrastructure to allow the outbound POP and IMAP connections to specific business-required sites.

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IT Outsourcing: How to Save Money After the First Year

By  Stephanie Overby

You can’t blame IT outsourcing customers for breathing a sigh of relief as they enter the second year of an IT services contract. The transition is over and steady state begins.

But something else begins to occur in year two of an outsourcing deal. Your prices can become drastically out of sync with the market, especially today. IT outsourcing prices have been dropping an average of 15 percent a year, according to outsourcing consultancy Alsbridge’s ProBenchmark unit, thanks to outsourcer price cuts, aggressive use of offshore infrastructure management, hardware price declines, better management, and increasing use of virtualization. In some industries, such as retail, outsourcing prices have been dropping even more dramatically, says ProBenchmark’s director of outsourcing and benchmarking services Howard Davies. (See chart of annual unit price declines for specific IT services below.)

For IT outsourcing customers who began their contracts with above-market rates, the disparity between what they’re paying their providers and current market rates is even greater. “We had one client who saw a 40 percent reduction in server pricing for a deal that was two and a half years old,” Davies says.

Some outsourcing buyers wait until the end of the contract term is approaching to benchmark their outsourcing prices because they don’t want to create a contentious relationship with their outsourcer while work remains to be done. But given the current competitive outsourcing market, says ProBenchmark Director Chris Pattacini, most providers are anticipating more benchmarking from their customers.

“[They] know they are going to be under pressure to keep pricing in line with the market throughout the deal,” he says. “It is important [for IT outsourcing customers] to benchmark early to set expectations with the vendor.”

While outsourcers traditionally back-loaded their costs on their bigger, transformation deals (losing money in the early years and making up for it later), Pattacini says vendors today are savvier about segregating their costs. So customers need not worry as much about cutting into their providers’ profit margins with reasonable price adjustments or other concessions.

“As the market shifts to more standardized delivery models, including cloud [computing], there is a clearer delineation between transition and transformation costs and operational costs,” Pattacini says. “Most vendors today understand that the transaction will get benchmarked at some point, and therefore more carefully separate out one-time investments.”

Regular price check-ins can be beneficial for both parties. “Our experience has been that clients that benchmark more frequently see trends in market pricing and service delivery earlier, which allows them to not only respond sooner to market trends, but also allows them to negotiate smaller, more manageable adjustments to their transactions, rather than trying to make up for years of overcharging with one large benchmark,” Pattacini says.

What happens after a year-two benchmark reveals that overpricing depends on the customer and its relationship with the vendor. Some CIOs are ready to renegotiate anything that’s five percent above market for a given service because that’s their right in standard benchmarking clauses. But that’s not always the best move.

“In practice, clients need to weigh the expected savings against other impacts or concessions that might arise,” Pattacini advises. “A benchmark helps to frame the opportunity to negotiate—not only on price, but also other elements of the transaction as well. We’ve seen clients forgo a price concession in exchange for other changes to the contract, such as increased service levels, changes in scope, etc.”

Of course, frequent price checks don’t come cheap: They require the time and attention of internal IT staff. Outsourcing customers shouldn’t benchmark simply because their contract is two years old. Instead, Davies and Pattacini advise, they should ask themselves the following four questions to determine whether to benchmark their provider’s prices.

1. Have service volumes or deal scope increased dramatically? If volumes in a certain tower of IT service have grown by 30 percent or more or your deal has been experiencing scope creep, your once-competitive contract may no longer be such a great deal.

2. Does it feel like you’re paying too much? Are business leaders complaining that IT costs are out of line with the market or actively seeking to slash the IT budget? “Organizations that are asking these questions often can benefit from a benchmark,” says Davies, “either to identify savings or to confirm market competitiveness.”

3. Is your relationship rocky? Problems meeting service levels, vendor account team turnover and other delivery issues may be an indication that you’re actually paying too little. A benchmark can help determine if the deal is priced correctly. Price adjustments to help improve delivery may be worth the increased cost.

4. Are the individuals who initiated the deal long gone? If there’s only one person left in your organization who actually knows what’s in the contract, you’re in trouble. “If you are at that point,” says Davies, “it’s most likely that the contract pricing and the contract itself have become so unwieldy that they need to be revisited.”

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China Pushing to Become IT Outsourcing Powerhouse

by Beth Bacheldor

There certainly are other countries that are trying to give India a run for its money in the IT outsourcing market. I’ve written about Vietnam and Egypt (you can read about those two countries here). But clearly, no country is more aggressive in pursuing outsourcing business than China. And it looks like China’s insistence is starting to pay off.

Audit, tax and advisory firm KPMG says that China has replaced India as Asian-Pacific companies’ top choice for outsourcing and shared services, In fact, KPMG predicts that by 2014, China’s total outsourcing market will be worth $43.9 billion, according to media reports on a study that the firm released.

In this article in The Times of India, KPMG China’s global head Edge Zarrella says that while China’s outsourcing capabilities aren’t as mature as India’s, the growth of China’s outsourcing market is significant. “For executives within Asia Pacific the message is clear — China is now leading the way,” Zarrella is quoted as saying.

The survey found that 42 percent of the respondents (280 senior company executives across Asia were queried) said their companies have set up one of their shared services centers in China, and 41 percent said they have a third-party outsourcing provider in China.

Even more intriguing is that, according to market figures from KPMG and China’s Ministry of Commerce, China’s onshore and offshore outsourcing market was worth only $7.5 billion in 2007 but by 2009 had nearly tripled to $20 billion. And KPMG, the article states, estimates China’s total outsourcing market will be worth $42.9 billion by 2014. Now that’s growth!

No surprise—low labor costs are driving that growth. According to this article in People’s Daily Online, KMPG found in its survey that 51 percent of the respondents chose low labor costs as the top reason for contracting outsourcing providers in China. But language capabilities were also a big factor, the survey found (53 percent chose shared services from a Chinese provider because of language, the survey found).

Of course, Indian outsourcing providers are still pushing ahead, and based on some recent earnings reports, they are doing well. India’s largest outsourcing company Tata Consultancy Services (TCS) said that in the quarter ended June 30 its revenue had grown by 21 percent to $1.8 billion, while profits were up 29 percent to $403 million from last year. The company’s CEO, N. Chandrasekaran, said in a prepared statement that the company signed 10 large deals in the quarter and is currently pursuing 15 more large deals.

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IT Outsourcing: 7 Tips for Peace, Profit and Productivity

By Stephanie Overby

Though Dr. Oliver Williamson may not be known to everyone in IT outsourcing areas, a consortium of academics is looking forward to changing that condition. Being a professor emeritus of business, economics and law at the University of California-Berkeley, Williamson won the Nobel Prize in Economics in 2009 for his examination of economic governance. As he has spent his whole life studying transactional cost economics—the practice of accounting for the total costs of a contract, both obvious and hidden, some outsourcing researchers claim that anyone occupying in outsourcing today could learn precious lessons from him.

Kate Vitasek, who teaches in the University of Tennessee’s Center for Executive Education and is the author of Vested Outsourcing: Five Rules That Will Transform Outsourcing, worked together with three other academics for lessons by culling Williamson’s work on improving performance, reducing costs and increasing satisfaction when outsourcing. (The full white paper can be downloaded. Registration is required.) Here are seven of their suggestions.

1- Build cooperation into the contract

In an article with regard to transaction cost economics and outsourcing management, Williamson stated that “efficiency gains from trade go back to when our ancestors traded nuts for berries on the edge of the forest, [in] which exchanges were both transparent and simple.”

By contrast, Modern outsourcing relationships are obviously more complex. However, Williamson insisted on that additional gains can be achieved if the outsourcing customer and supplier, throughout the life of the deal, create processes to preserve cooperation. For instance, Vitasek says that instead of “What’s in it for me?” outsourcing partners should ask, “What’s in it for we?” “Don’t just say ‘win-win’. Contract for a ‘win-win’.”

2- Factor in hidden transaction costs

There is no outsourced project ever costing what it claims in the contract. As a matter of fact, the dotted line and the bottom line can be pretty far apart. It is tricky to figure out what an outsourcing deal will actually cost in the long run, but it is crucial.

“Every contract structure and relationship, especially in a vested, collaborative partnership, should account for risk, asset specificity, frequency and work to be done, or else it’s not much of a contract,” Vitasek says.

One-sided contracts that push all the risk on either the service provider or the customer will cost more in the long run.

Outsourcing customers, especially those who have failed in this area, may be inclined to create an overly detailed contract to cover every possible contingency. However, in accordance with Vitasek’s interpretation of Williamson, it is a mistake not to mention impossible.

Vitasek says, “It limits innovation and encourages finger-pointing when there is inevitable scope creep and changes. Instead of trying to guess about the future, it is better to indicate an outline of the work to be done and provide recourse for ultimate appeal. For work yet to be determined, focus on the process and tools to be used, not on the work to be done.”

3- Make end-of-life arrangements early

Since outsourcing partnerships can’t last forever, it’s constructive to plan for the end early on. Williamson wrote in the Journal of Supply Chain Management in April 2008 that due to “feasible foresight,” an outsourcing customer can lighten the effects of a defection from its services provider.

“It is important to recognize that business relationships may need to change due to changes in the market, and for this reason, contracts need a well thought out exit management plan,” says Vitasek. “Practitioners should clearly identify the costs associated with terminating a contract [and] create safeguards in the contract that are fair and equitable in terms of keeping either party whole in the event that a contract needs to be terminated prematurely.”

4- Create a shared vision statement

If you can imply strategic points of alliance with your outsourcer, you will minimize additional transaction costs over the life of an IT services deal. Vitasek proposes to create a shared vision statement to direct the relationship. In addition, she recommends developing pricing models that reward service providers for achieving common goals.

5- Play nice (but not too nice)

Of course, you can strong arm your supplier at the negotiating table—or be strong-armed—but either style of contracting will come back to bite you. Vitasek says that organizations, which imply what Williamson calls “one-sided muscular contracting” to gain advantage over an outsourcer, will see only short-term benefits.

Williamson said, “[They] will ultimately face higher market costs and transaction costs from switching or transitioning suppliers, or from suppliers being forced to use conventional negotiations to put in myopic and costly contractual provisions and behaviors that simply drive up hidden costs.” Furthermore, he warned against “idealistic benign contracting,” which provides an assumption that most people will do what they say—and some will do more—most of the time.

A middle ground of “credible contracting” is recommended by the Nobel owner, which he describes as more “hardhearted wise” than its extreme alternatives. Vitasek says that credible contracting is “also flexible enough to acknowledge that complex contracts, by their very nature, are incomplete and thus require cooperative adaptation.”

6- Always leave money on the table

Most outsourcing customers and suppliers suppose that leaving money on the table at best is wasteful, and at worst foolish. However, Williamson doesn’t think so. It actually costs both the customer and the provider in the long run to hard bargain negotiations to get to the lowest possible price.

Williamson wrote, “Successive ploys and counterploys of this kind could plainly jeopardize the joint gains from a simpler and more assuredly constructive contractual relationship. Always leaving money on the table can thus be interpreted as a signal of constructive intent to work cooperatively,” thereby mitigating “concerns over relentlessly calculative strategic behavior.”

Of course, he also points out that the effectiveness brought by this tactic varies based on the level of trust among those involved.

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